The Labor Department on Thursday reported an 8.2% year-over-year increase in the consumer price index for September, which sent the SPDR S&P 500 (NYSE:SPY) tumbling lower.
What Happened: The headline CPI rose 8.2% in September, down from 8.3% in August, according to data from the U.S. Bureau of Labor Statistics.
The September CPI reading came in above average economist estimates of 8.1%.
On a month-over-month basis, CPI was up 0.4% versus average economist estimates for a 0.2% jump. Core inflation, which excludes volatile food and energy prices, was up 6.6% in September, above average economist estimates for a 6.5% gain.
Experts On What It Means For The Fed: RSM US chief economist Joseph Brusuelas said the elevated inflation print implies that another "supersize Fed rate hike" is coming next month.
Thursday's report indicates that inflation remains stubborn nine months into the Fed’s efforts to restore price stability, he said.
"Given the real risks that inflation presents to the American real economy one cannot simply cherry pick their data points to craft a forward-looking monetary policy outlook. Rather, this is a time of difficult choices, economic pain, and higher interest rates for a longer period than anyone will be comfortable," Brusuelas said.
The economist noted that the window for a soft landing has narrowed again following the CPI release and he now expects a recession to quickly become the baseline scenario in 2023.
Comerica Bank's chief economist Bill Adams noted that core CPI reached a new 40-year high. He agreed that the CPI data implies another 0.75% hike is coming in November, but he doesn't expect large rate hikes to continue for much longer.
"The Fed is going to probably make one more big rate hike at its November decision, and then slow the pace of hikes into early next year," Adams said.
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Experts On What It Means For The Markets: Luke Lloyd, investment strategist & wealth advisor at Strategic Wealth Partners, highlighted the month-over-month increase, which shows that inflation isn't slowing down.
"Truly, we need to see flat M/M numbers or even a negative (deflation) number to show that the Fed is actually doing their job," Lloyd said.
He sees a "rude awakening" ahead, citing mismanaged investor expectations.
"Investors need to treat this environment like a marathon and be patient. As inflation continues to run rampant and rates go higher faster than expected, you’re going to see a lot of leverage come out of the stock market and a lot of highly levered companies will fight to survive in this kind of environment," Lloyd said.
Mark Putrino, chief market technician and lead educator at the Benzinga Trading School, expressed a similar sentiment following the CPI release.
"The best traders don’t guess. They let the market tell them what to do. And right now, it’s saying it may be about to make another big move lower," Putrino said.
He highlighted some market leading stocks that have fallen through support and look to be trending lower. Apple Inc (NASDAQ:AAPL) broke through support when it crossed the $138 level and Berkshire Hathaway Inc (NYSE: BRK-B) fell below its support level around $265, he said.
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The SPY's technical setup doesn't look any better after it fell through support around $356, he added.
"Of course, no human analyst knows what’s going to happen. But ‘Mr. Market’ seems to be saying that he wants to move lower," Putrino said.
SPY Price Action: After making new 52-week lows on Thursday, the SPY ETF was rebounding in late morning, trading 0.97% higher at $360.03, according to Benzinga Pro.
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